Morning Report

July 20, 2022

“Following reports that European Central Bank policymakers are considering raising interest rates by a larger-than-expected 50 basis points on Thursday, the dollar slipped against the euro for a third straight session, sending the euro further away from the sub-parity levels of last week.”

Sam Cornford, Partner – Head of Trading

Main Headlines

The White House has warned that Russia is beginning to roll out its plans to annex large parts of southern Ukraine by installing proxy officials and preparing to hold stage-managed referendums. John Kirby, head of strategic communications at the US National Security Council, said on Tuesday that Moscow had started laying the groundwork for its annexation plans, which have been widely anticipated since its troops started to gain control of the region. Kirby told reporters at the White House: “Russia is beginning to roll out a version of what you could call an annexation playbook — very similar to the one we saw in 2014,” referring to when the Kremlin sent special forces into Crimea to capture territory before holding a carefully controlled referendum on sovereignty. Kirby noted that most other countries did not recognise the Kremlin’s previous annexation of Crimea. He also described how the Kremlin had detailed plans in place to annex the cities of Kherson and Zaporizhzhia, as well as the entire Donetsk and Luhansk regions.

Bank of England governor Andrew Bailey has raised the possibility of increasing interest rates by half a percentage point in early August as he toughened the central bank’s language on battling rising prices. Bailey said the central bank’s Monetary Policy Committee had an “absolute priority” to bring inflation back down to its 2% target and faced the “largest challenge” to inflation control since the bank gained independence on setting interest rates in 1997. With June inflation figures reportedly breaking another 40-year high, reaching 9.4%, Bailey set out the policy options under consideration by the MPC. A half-percentage-point interest rate rise would be the largest increase since 1995. The governor also raised the BoE’s thinking for the first time on selling some of the assets it bought under rounds of quantitative easing since 2009. Financial markets increasingly expect the European Central Bank to increase its main interest rates also by half a percentage point on Thursday.


Sterling is stronger against the dollar and weaker against the euro this morning. UK business confidence in the global economy has slumped to its lowest level in a decade amid the cost-of-living crisis and Russia’s invasion of Ukraine, according to a survey of FTSE 350 companies. The Boardroom Bellwether survey found that 76% of the companies that responded expect the economy to shrink in the next year — the biggest annual swing in sentiment since the research was first conducted a decade ago. This time last year, 96% of companies that replied predicted the economy to improve. The UK government has made little progress in tackling coronavirus-era fraud in the procurement of personal protective equipment, according to an excoriating inquiry by MPs, which suggests much taxpayer money remains at risk owing to the relaxation of normal scrutiny during the crisis. The Public Accounts Committee said officials in the department had carried out “insufficient due diligence checks at the outset of the pandemic to prevent potential profiteering and to identify conflicts of interest”.


The euro is well bid against most major currencies overnight. Ukraine and Russia are close to agreeing a deal to secure the safe passage of millions of tonnes of grain through the Black Sea but remain at odds over how to ensure the security of the ports and ships along the crucial export route, according to people familiar with the UN-led negotiations. The four-party agreement, which is also being mediated by Turkey, would end a months-long Russian blockade of Ukraine’s Black Sea ports that has cut off the export route for one of the world’s leading grain producers and threatened a global food crisis. A Russian gas embargo would lead to severe recessions in eastern Europe and Italy if countries around the world hoarded their own scarce supplies, the IMF warned on Tuesday in a bid to encourage solidarity between nations. The fund predicted that unless liquid natural gas was shared and prices were artificially held down, any Russian action to stop supplying Europe would trigger economic contractions of more than 5% over the next year in the Czech Republic, Hungary, Slovakia, and Italy.


The dollar is weaker than most major currencies in the early morning trade. The US effort to reduce emissions in line with targets set by the Paris climate agreement is in jeopardy after Democratic senator Joe Manchin torpedoed ambitious new legislation on Capitol Hill, experts say. While the country has committed to reduce its emissions by 50% to 52% below 2005 levels by 2030, recent research by Rhodium Group shows that without further policy action, the US is on track for a reduction of just 24% to 35%. Twitter won an early victory in its legal battle to force Elon Musk to complete his $44 billion takeover after a judge sided with the social media company and set a timetable for a fast-track trial starting in October. The company accuses him of repeatedly breaching the terms of the merger agreement and trying to retract his offer because tech stocks have dropped since the deal was first struck in April.


US stocks surged in a broad-based rally as investors assessed the outlook for earnings and as speculation grew that markets may have come close to bottoming out. The S&P 500 defied the late-day reversal that has been a cornerstone of this volatile market, closing near session highs in its biggest one-day gain since June 24 as all 11 industry groups advanced. The tech-heavy Nasdaq 100 outperformed major benchmarks, ending 3.1% higher, with megacaps Apple Inc. and Alphabet Inc. bouncing back from Monday’s losses. Stocks favoured by short sellers were among the biggest gainers on the day, suggesting that bearish traders were forced to cover positions moving against them. In extended trading, Netflix Inc. gained after reporting a second-quarter subscriber loss that was less than expected. With the potential for earnings disappointments baked into markets, any upside surprises may lead to outsized gains. Investors remain on high alert for signs that high inflation and monetary tightening are squeezing consumers and employment.

Main Economic Data/Central Banks/Government (All Times CET)

8:00 a.m.: UK June CPI, retail price index
8:00 a.m.: Germany June PPI
9:00 a.m.: Czech June PPI
10:00 a.m.: ECB June current account
10:00 a.m.: Poland June PPI
10:30 a.m.: UK May house price index
11:30 a.m.: Germany to sell bonds
12:00 p.m.: EU to sell bills
4:00 p.m.: Euro-area July consumer confidence
4:30 p.m.: EIA US crude inventory report
6:00 p.m.: Russia June PPI, weekly CPI

Corporate Events

Earnings include Tesla, Kone, Volvo Car, Abbott


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